SEC charges bank holding company with over-issuance of securities

Securities Enforcement SEC Bank Holding Companies Securities Act Securities Exchange Act

On September 29, the SEC announced a cease and desist order against a London-based bank holding company and its subsidiary (collectively, “respondents”) for engaging in unregistered offers and the sale of securities as a result of a failure to implement internal controls to track such transactions. According to the SEC’s order, after the SEC settled an action against an affiliate of the subsidiary, the subsidiary lost its status as a well-known seasoned issuer. As a result, it had to quantify the total number of securities that it anticipated offering and selling and pay registration fees for those offerings upon the filing of a new registration statement. The SEC further noted that, given this requirement, the subsidiary’s “personnel understood the consequences of this status change, including that they should consider implementing a mechanism to track offers and sales of securities off any shelf, relative to the registered amount of securities available to be offered or sold off that shelf, in order to ensure that no securities in excess of the amount registered were offered or sold.” However, according to the SEC, no internal controls were established. According to the SEC’s order, as a result of this failure, the subsidiary allegedly offered and sold approximately $17.7 billion of securities in unregistered transactions. The SEC noted that the subsidiary self-reported its over-issuances to regulators, voluntarily provided documents during the SEC investigation, and subsequently commenced a rescission offer. The SEC found that the subsidiary violated provisions of the Securities Act of 1933 and that both respondents violated provisions of the Securities Exchange Act of 1934. Without admitting or denying the SEC’s findings, the respondents agreed to cease-and-desist from violating the charged provisions and to comply with certain undertakings designed to effect compliance with Section 5 of the Securities Act, in addition to paying the $200 million civil penalty. The subsidiary also agreed to pay disgorgement of $149 million and prejudgment interest of $11 million deemed satisfied by its offer of rescission.